The World of Fashion Evolves

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Designs Aren't the Only Thing That's Changing in the Apparel Industry

According to a story in the July 16 Wall Street Journal (link), the apparel industry is facing a number of challenges that are affecting the entire supply chain.  After three years of excess inventories and idle labor, companies throughout the industry are taking steps to reduce the risk of similar exposure in the future.  Instead of reinventing themselves, though, it appears that the companies are dealing with the changes by attempting to push the risk to their customers and/or suppliers.

When industries face a changing environment, companies throughout the supply chain need to work together to respond to the change in a positive manner.  The immediate reaction to drive risks to customers or suppliers has effects that, although not immediately visible, have longer-term effects that are destructive to everyone involved.  It does not help a company to improve its own profitability at the expense of its suppliers or customers.

The New World of Fashion

Among the issues faced by the apparel industry include:

• Smaller orders placed by retailers to test demand before committing to larger runs;
   
• Increased material, freight, and labor costs;
   
• Delays in ramping up production capacity because of a lack of confidence in long-term demand.

If smaller runs and increased costs sound familiar, it's because these are issues that have been faced by many industries over the last 30 years.  Change happens in every industry, and those companies that are flexible and able to adapt to (or drive) the changes quickly will be the most successful in the years ahead.

The Focus Still Needs to be the Customer

One of the problems I noticed from the information in the article is that the impetus for change within the industry is profitability rather than the consumer.  As has been proven over and over again in business, changes made without regard to the end customer can have devastating effects.  While a focus on value can increase profits for the company, a focus on profitability will not lead to increased value for the customer.

Two key areas that companies in the apparel industry need to investigate in order to survive and grow in the years ahead include:

1. Lean Manufacturing  Smaller production runs require improvements in quality, setups, and changeovers.  Lean (when done correctly) gets everyone focused on eliminating the waste that forces longer leadtimes and larger lot sizes.  Lean will also address the issue of increased labor costs;
    
2. Closer Factories  Increased freight costs and leadtimes will force retailers to have production capabilities closer to the point of sale.  Although oil prices have leveled out since the initial drop at the start of the recession, it is only a matter of time before they start rising again.  As a result, the benefits of having factories in areas with low labor costs will be offset by increased freight costs.

In an industry that thrives on change at the consumer level, one would think that the fashion retailers and producers would have no problem adapting to changes themselves.  Unfortunately, this does not appear to be the case.  The environment has changed and, as has been the case in so many industries over the years, it's time for a new business model.  The sooner the apparel companies realize this and make the necessary changes to adapt, the sooner they can once again turn their designs into financial success.

Television Advertising: The Internet's Next Victim

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"[Companies] must be prepared for major change in the future, and you must start now.  If someone else's revolutionary innovation catches you unawares, you must abandon what made you successful and take an entirely different course immediately." - Peter Drucker (1973)

I'm continually amazed at the way the internet has changed - and continues to change - the world of business.  Many of the changes appear to happen fairly slowly and are not readily apparent until well after the shift has occurred and left companies that didn't see it coming in serious trouble.

Lately, I've noticed a change in advertising that is affecting ad agencies, producers of consumer products, and television networks.  The internet is providing virtually free access to existing and potential customers - a situation that with the exception of a few isolated instances, had never before existed.

Seeking Out Commercials

Companies are starting to take their ads to sites like YouTube and, if successful, can reach millions of people for free.  As an example, a recent Coca-Cola Happiness Machine ad has had almost 2.4 million hits since being uploaded.  And since people are actually seeking out this video (and others like it), it's really falls into the category of indirect advertising, because it entertains as much as it sells.

This situation has many implications for those involved in making and airing commercials.  Television networks now face a serious threat that will most likely put downward pressure on rates for air time.  Advertisers now have somewhere else to go to air their commercials and, although the ads have to be creative and produced well enough that people will want to watch them, the money saved in airtime charges can more than pay for extra production costs.

For the television networks, it can mean a serious hit on revenues in the future, which is one of the reasons that has led to the battles between the networks and television subscription providers.  The networks can not count on ad revenues into the future to cover their costs and meet earnings targets.  To make up for lost future revenues, they are asking for more money from the subscription providers that want to carry their channels.  To read a blog post on the increasing tensions between the networks and subscription providers, click here.

Length No Longer An Issue

Another result of the birth of indirect internet advertising is that it no longer limits commercials to 30 or 60 seconds (the Coca-Cola video runs 2:03).  Fashion house Donna Karan has produced a "mini-film" entitled, Four-Play with Christina Ricci that is really nothing more than a 2:09 commercial.  The ad, which has not (and was never intended to) run on television, has had several hundred-thousand hits on a variety of fashion websites since its "release."  This type of advertising is becoming very popular in the fashion industry.

A final thought that comes to mind about this situation is the fact that it's much easier for advertisers to track the number of views its commercials are getting.  Television ratings services and subscription providers can report the number of television sets that were tuned to a particular station at a particular time a commercial aired, but there is no certainty that people didn't walk off or even paid attention during the commercial.  The growing use of DVRs has also made it very easy to skip ads to get back to the show.  When someone hits a video on the internet, on the other hand, it is pretty well certain that they are watching it.

Staying Ahead Of The Curve

Although it has been reported recently that television ad rates have returned to pre-recession levels, there's no telling what lies ahead for the networks.  One thing for sure, though, is that the television advertising industry is changing.  Just like other changes that are occurring - or will occur - because of the internet, it's vital for companies to pay attention to the world around them and be extremely sensitive to the subtle shifts that without warning can turn into whole-scale changes to the business environment.  And as fast as things are changing in today's world, falling behind is not something that a business wants to do.

Fast and Flexible

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As we climb out of the worst economic downturn since the Great Depression, it's looking like success will come to those companies that are more flexible and can adapt to change more quickly than competitors.  Although this has always been a competitive advantage for companies, it is quickly becoming a necessity for survival in the years ahead.

The problem this poses for many organizations is related to the fact that, as a company grows it tends to become slower and more resistant to change.  With growth comes more people, more formalized policies and systems, and additional layers of management that all contribute to a slowdown in decision-making and interfere with the ability to do much of anything quickly.

Begin by Recognizing the Need

The problem for many companies is that they don't realize how slow they've become or that the lack of speed is affecting the ability to compete.  Listed below are a number of activities where moving quicker can greatly improve competitiveness.  When looking at these activities from strictly a financial perspective, it becomes clear that they actually cost the company when not addressed.  Once an investment is made in a particular process - whether related to new product development, manufacturing, etc. - the company loses money everyday that the investment does not produce income.

• New product development
• Shipping products to customers
• Building construction
• Servicing customers
• Integrating an acquisition
• Expansion into new markets
• Implementing a new ERP system

It is important to keep in mind that success in business requires more than speed.  Quality of product or service must be continually improved along with improving cycle times. There are very few markets where customers will accept substandard quality even when the product or service is delivered quickly.

How?

In order to become more flexible and adaptive, companies must study their processes, systems, and cultures continually to identify where the delays and breakdowns occur.

On the process side of the equation, reducing cycle time requires mapping the value stream and identifying where the delays, breakdowns, and quality problems occur.  This assumes, of course, that there is, in fact, a standard process.  It is not uncommon for companies to have a variety of ways to perform similar tasks.  Sometimes referred to as the "it depends" rule, improving the process first requires defining a standard approach for how the work is to be done - and making sure everyone follows the standard - before attempting to make improvements.

Working on the process issues to reduce cycle time tends to be the easy part of improvement.  The culture must also be addressed to determine how open people are to changing processes, how effective communication is within the company, and basically why people do the things they do.

Removing the barriers that interfere with a company's ability to react quickly to changing market conditions will create a more flexible and adaptive - and profitable - company.  The key is to keep speed and flexibility in the forefront of people's minds until it makes its way into the company's operating philosophy.

Success in this endeavor can put you in an elite group of companies that manage to remain fast and flexible regardless of how large they become.

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Is Change Management the Missing Link?

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I recently had lunch with a financial executive who expressed frustration with his company's lack of success with strategic initiatives.  He told me that the initiatives tended to evolve from high expectations to disappointment to - in the most drastic instances, being abandoned altogether.

Among the initiatives he mentioned that had disappointing results over the last couple of years included projects related to reducing the product development cycle time, implementing lean manufacturing, and upgrading the company's ERP system.

It was very clear that the company's lack of success was not due to a lack of desire or interest.   The management team spends a significant amount of time each year developing the strategic plan and creating initiatives to improve competitiveness.  A manager or director is always assigned the responsibility to lead projects and a fairly detailed plan is developed for each initiative.

So What's the Problem?

The inability to successfully complete high-level initiatives is a fairly common problem for companies.  Like many organizations, this company tended to approach strategic initiatives from a purely technical perspective, while ignoring the behavioral factors involved in change.

For most organizations, strategic initiatives involve a significant level of change.  Whether it is a change in behavior or method of operation, success requires respecting and validating the human complexities involved, no matter how insignificant the change appears to be on the surface.

There are barriers to change in virtually every organization that interfere with successful completion of initiatives.  These barriers can be personal (related to an individual's personal fear of change), political (resulting from the interactions and culture of the organization), or organizational (caused by policies and systems within the company).  Recognizing the existence and extent of the barriers can greatly improve the chances to succeed with the desired change.

Planning for Change

It is important to include steps to address the barriers as part of the planning process for change initiatives.  For example, if there is fear within the organization, steps must be taken to identify the causes and actions to reduce its effect on the initiative.  The types of fear often associated with change include fear of job loss, fear of appearing ignorant for asking questions about the change, fear of retaliation for questioning the approach being taken, and others.  Although it is virtually impossible to completely eliminate fear within any organization, it is important to understand where it can interfere with the change and minimize it as much as possible.

An Example

A global company with factories in several countries around the world created an initiative to implement a best practices process throughout the organization.  The initiative included a kick-off meeting attended by the company's plant managers where the process was introduced and expectations communicated.  Throughout the following year, though, very little sharing was done between plants and everyone pretty much operated as they had before the initiative was announced.

When I was called in to help with the initiative, I began with a series of interviews to identify barriers that existed within the company that could interfere with the sharing and adoption of best practices.  From the interviews, it became clear that despite the importance surrounding the initiative, the company's culture actually discouraged sharing of information and accepting suggestions from people at other plants.  The plant managers had been in their positions for many years and were regularly rewarded by acting independently.  Many were selected for the position because of their strong, independent personalities, and had always been expected by senior leaders to be experts on pretty much everything related to the factories they led.

It quickly became obvious that the plant managers did not accept input from each other because of the fear of appearing less knowledgeable than one or more of their peers.  Also, since the company's culture was highly competitive, people did not want to share information that would help improve another plant's results.

Resolving this problem required modifying the behavior of the senior leaders, coaching the plant managers, and changing the company's systems of measurements and rewards.  It required a lot of effort and consistency at the senior level but eventually the initiative began to visibly progress and result in significant productivity improvement across the company.

In the above example, the process for sharing best practices and visible commitment from the top was excellent.  All that was missing was a change management approach to the initiative.  Once the barriers to change were identified and addressed, implementing the process became much easier.

Whether a company is implementing a best practices process, pursuing lean, or integrating an acquisition, it is vital that a change management approach is used to make sure the people issues (i.e., the barriers to change) are adequately addressed.

Change as a Competitive Weapon

As we slowly emerge from the worst economic period since the Great Depression, those companies that are able to adapt quickly to changing market conditions will be the most successful.  Organizations cannot afford to waste time with initiatives that move too slowly or fail to achieve desired results.  Making the effort to identify and remove the barriers to change within the company will greatly improve the level of success with initiatives while simultaneously creating more a flexible, adaptive, and profitable company.